CGE model

The approach taken by the UK government to estimate the effects of the carbon budgets on economic growth uses the HMRC CGE (“computable general equilibrium”) model. (See the 2011 carbon plan, p.181). This model has proved controversial for its use in assessing tax cuts but its use in climate change policy also warrants scrutiny.

Here is how it works:

First, calculate how the economy would work under a few simplifying assumptions.

Dynamic modelling sounds like something Cara Delivinge might do as she scatters hashtags across Instagram. But it is actually even more subversive and exciting than our Cara. If the advocates of this mathematical economic modelling technique get their way, then it could transform how public policy is assessed in Britain. In doing so, it could make arguing for tax cuts and a smaller state a lot easier.

Let’s look back to the Autumn Statement. In its response to the chancellor’s annual announcements, The Taxpayers’ Alliance highlighted three areas where it says there are “weaknesses in tax policy”. Predictably, one weakness is that taxes are too high. Another is that there are too many of them. But the third recommendation is more esoteric. The pressure group said that “dynamic modelling” should be used for “all fiscal policy changes announced by the government”.

What is so important about this?

One clue comes in the form of a paper released on Monday by the Treasury and HM Revenue & Customs into the coalition’s policies on fuel duty, the tax on refined petrol, diesel and other fuels. Read more

Off Message

with John McDermott

About this blog

About John

Blog guide

Welcome. This blog is a modest attempt to reduce befuddlement. It
features a lot of public policy (and charts) with a smattering of
politics and culture.

John McDermott has been with the FT since 2010. He was formerly the executive comment editor in London and before that a writer for FT Alphaville in New York. Prior to joining the FT, he was a policy adviser in the Downing Street Policy Unit.